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India Plays Down Fears of Bank Collapse

November 01, 2009 11:06 AM

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India Plays Down Fears of Bank Collapse

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India's finance minister is seeking to dispel rumors of an impending major bank failure, amid the global economic turmoil. After opening near a two-year low, India's major stock indexes recovered in Tuesday trading, in contrast to most bourses elsewhere in the region. VOA Correspondent Steve Herman reports from New Delhi.

After early heavy selling of banking, property and information technology stocks, India's markets reversed course into positive territory. In Mumbai, the key indexes finished three percent higher. That gave a glimmer of hope global markets might be able to pull out a tailspin, as investors wait for American lawmakers to agree on a plan to rescue the U.S. financial system.

Most Asian markets fell. Japan's benchmark Nikkei closed at its lowest level in three years, despite another huge dose of liquidity - the latest infusion totaling $28 billion from the country's central bank.

The main index in Taiwan dropped 3.5 percent. But bargain hunters helped boost Hong Kong's Hang Seng a half of a percent.

Investors here worried that India would be next to see a collapse of a major bank. The country's largest private bank, ICICI, is demanding a probe by regulators of alleged manipulation of its share price. It says selling of its stock was taking place as a result of malicious rumors about its stability.

Finance Minister Palaniappan Chidambaram attempted to pour cold water on such speculation.

"All our banks are well capitalized, well regulated. No Indian depositor need be apprehensive. We're watching the situation carefully," said Chidambaram. "Of course, we will be greatly helped if a bail-out package is quickly approved by the U.S. Congress, because we will not suffer any collateral damage."

The Reserve Bank of India says there is no need for panic and ICICI Bank has enough capital to meet the demands of its depositors. However, officials acknowledge some worried account holders have been withdrawing their funds.

The Securities and Exchange Board of India added soothing words from its chairman, who declared that the nation's equities markets are "resilient" with no indication that financial institutions are violating short-selling rules.

Short-selling allows traders to borrow shares from brokers that they then sell. When prices drop the traders buy back the stock and make a profit by returning the shares to the brokers.

Economic forecasts here remain positive about the direction of India's economy. They say the global credit crisis and possible recession in the United States could trim growth, but it should stay near eight percent for this year.